Regulation concerns seen threatening Turkish stock market rally

By bne IntelliNewsFebruary 7, 2013

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Raising concern about new regulations over share trading in one of the hottest markets around, the owners and managers of Turkish food processor Mango Gida Sanayi & Ticaret are reported to have sold 34% of the company on the Istanbul Stock Exchange ahead of announcing creditor demands that sent the stock tumbling to almost half its value.

Mango chairman Ayhan Karak and vice chairman Mehmet Yayla sold 13.3m shares between October 1 and January 28, Bloomberg reported. The final divestment came just two days before the company announced in a statement to the Istanbul Stock Exchange that it is facing creditor demands against its assets. The news sent the stock plunging 47%.

Turkey's Capital Markets Board refused to comment on individual companies, a spokesman told the newswire. However, an insider trading scandal would do little to help keep the momentum going in the Turkish stock market, especially if renewed worries about the Eurozone crisis cause money to be pulled out of emerging markets.

Meanwhile, the stock market rally also faces country specific challenges. Buoyed by rapid economic growth of 8.5% in 2011, and the following "soft landing" engineered by the government and central bank last year, the Turkish market has been one of the best performing in the world over the past couple of years. Growing optimism since Fitch Ratings gave the country its first investment grade in October only extended the strong sentiment, and the Istanbul Stock Exchange has continued setting new record highs, in stark contrast to many other CEE markets. It soared by more than 50% in 2012. Analysts have regularly discussed the possibility of a reversal throughout, but the rally has continued unabated.

As VTB Capital wrote in a February 6 note: "The performance of the Turkish market in 2013 will more likely be driven by what the market is talking about towards the end of the year rather than current themes - we foresee a rise in inflation, interest rates and the current account deficit, a central bank with a tightening bias, downward bank earnings momentum, upcoming elections in 2014, a potentially more problematic geopolitical outlook, and, most importantly, the possibility of the end of global QE [quantitative easing] on the horizon, indicating an almost complete reversal of the positive arguments that drove Turkish markets to record highs in 2012."

Overall, the share sales in Mango dropped Karak and Yayla's combined holdings from 20% at the end of 2011 to just 3.4%, according to the January 30 stock exchange filing. The shares were sold for around TRY10.5m ($5.9m) all told. That same statement said the company is seeking to sell assets, meet potential buyers, cut its workforce and stop packaging activities after creditors sent the company seizure and payment orders totaling TRY38.3m. The Istanbul-based company's market capitalisation was TRY12.7m on February 6.

Karak claims that the shares were sold in order to loan the proceeds back to the company to help it through its difficulties. "There currently is no new development that we haven't announced through the Istanbul Stock Exchange," he told Bloomberg on February 5. "We were selling our shares, but then using the proceeds to lend to the company. Talks are ongoing" to resolve the company's financial difficulties, he said.

The two partners are now owed TRY7m-8m by the company, he said, making them effectively "creditors". However, that will likely come as little solace to the buyers of the shares, who are not identified by the report. The case is also unlikely to help Ankara's professed ambition to develop Istanbul into a global financial centre.

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